Function

• A mortgage modification is an option that many lenders will consider as a last resort before allowing a home to go into foreclosure. If you get behind on your mortgage payment, you could talk to the lender about negotiating a modification on your loan. The lender does not want your home to go into foreclosure because it means they would lose out on your regular interest payments. By slightly changing the terms, they can keep you as a customer and continue to bring in interest.
  
  

Financial Hardship

• In order to qualify for a loan modification, you generally have to prove that you have some type of financial hardship. While there are not specific guidelines that are used from one lender to the next, you may need to detail your financial hardship through a letter. The financial hardship letter should include all of the pertinent information surrounding the reasons behind not being able to make your mortgage payment.
  
  

Types

• Lenders may be willing to consider several different options when working with you on a mortgage modification. One type of program is known as a forbearance. This allows you to skip a certain number of mortgage payments in order to save money. Other programs allow you to pay extra on a number of payments in order to get caught back up again. You may also be able to get a lower interest rate, which would also lower your monthly payment.
  
  

Credit Impact

• Before completing a mortgage modification, you may want to consider the impact on your credit history. The loan modification itself may not negatively impact your credit history unless the lender lists it as a debt settlement on your credit report. The time leading up to the loan modification could impact your credit score negatively because you miss several payments. Missing even one payment can lower your credit score considerably.
  
  

Government Help

• The government has some programs that can assist with a loan modification. For example, the Home Affordable Modification Program is a program that gives financial incentives to mortgage lenders to help customers modify their loans. In order to qualify for these programs, you have to meet certain requirements, such as having a mortgage payment that is greater than 31 percent of your monthly income. The house also has to be your primary residence.